We entered into new era of cotton in 2008 with a price bubble in commodities across the world. The supply and demand scenario wasn't alarming, but in the second half, of 2008, the asset bubble in financial markets popped and as a result, cotton pricescorrected by 60%. The physical trade was also greatly impacted by the upheaval in the financial markets. Cotton traders faced tsunami-like storms of price movement. Cotton saw record prices in both spot and futures markets in 2011, peaking at $2.43 and$2.27 per pound, respectively, before a 160% correction occurred. These movements are so fast that by the time you realize and adapt to the change, businesses are already hurt badly — if not killed. Hedging tools that were meant for protection became destructive weapons. Even those companies that do not speculate, but always hedge, have suffered heavily. The crisis has most likely changed the way business is done for a long time to come. Faith in the derivative instruments for hedging is very low.
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